Judge: Armen Tamzarian, Case: 22STCV15248, Date: 2023-02-06 Tentative Ruling

Case Number: 22STCV15248    Hearing Date: February 6, 2023    Dept: 52

Defendants Wish Automotive III, Inc. and Nissan North America, Inc.’s Motion to Compel Arbitration and Stay Proceedings

Defendants Wish Automotive III, Inc. and Nissan North America, Inc. move to compel arbitration of this action by plaintiffs Susana Castro and Jose Silva.

Evidentiary Objections

Plaintiffs make three objections to defendants’ evidence.  In their initial moving papers, defendants were not required to prove the agreement’s existence via admissible evidence. 

A motion to compel arbitration is “a summary proceeding.”  (Espejo v. Southern California Permanente Medical Group (2016) 246 Cal.App.4th 1047, 1057.)  The moving party can meet the “initial burden to show an agreement to arbitrate by attaching a copy of the arbitration agreement purportedly bearing the opposing party’s signature.”  (Id. at p. 1060.)  For this initial burden, “ ‘it is not necessary to follow the normal procedures of document authentication.’ ”  (Id. at p. 1058.)  Only after the opposing party “challenge[s] the validity of that signature” must the moving party “establish by a preponderance of the evidence that the signature was authentic.”  (Ibid.) 

All three objections are overruled.

Existence of Agreement

            Plaintiffs argue defendants did not prove the existence of any arbitration agreement.  The court finds defendants met their burden.  They show plaintiffs Castro and Silva signed the retail installment sales contract attached as exhibit 1 to the declaration of Jason M. Richardson.  Plaintiffs do not adequately dispute the authenticity of the sales contract or their signatures.

Unconscionability

Plaintiffs contend the agreement is unconscionable.  It is not.  Unconscionability requires both procedural and substantive unconscionability using a sliding scale.  (Serafin v. Balco Properties Ltd., LLC (2015) 235 Cal.App.4th 165, 185 (Serafin).)  “No matter how heavily one side of the scale tips . . . both procedural and substantive unconscionability are required for a court to hold an arbitration agreement unenforceable.”  (Kilgore v. KeyBank, Nat. Ass'n (9th Cir. 2012) 673 F.3d 947, 963, citing Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114 (Armendariz).)

Plaintiffs show some procedural unconscionability.  Procedural unconscionability focuses on “‘oppression’ or ‘surprise’ due to unequal bargaining power… .” (Armendariz, supra, 24 Cal.4th at p. 114.)  “Procedural unconscionability occurs when the stronger party drafts the contract and presents it to the weaker party on a ‘take it or leave it basis.’” (Trivedi v. Curexo Technology Corp. (2010) 189 Cal.App.4th 387, 393, disapproved of on other grounds by Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237.)  “By itself, however, adhesion establishes only a ‘low’ degree of procedural unconscionability.”  (Davis v. Kozak (2020) 53 Cal.App.5th 897, 907.)  The weaker party’s lack of “any realistic opportunity to look elsewhere for a more favorable contract” also contributes to oppression.  (Parada v. Superior Court (2009) 176 Cal.App.4th 1554, 1572.)

The more powerful party, the seller, drafted the contract.  Plaintiffs had no reasonable opportunity to negotiate it.  Plaintiffs, however, could have bought a car somewhere else.  Plaintiffs therefore show only a low degree of procedural unconscionability.        

Plaintiffs show no substantive unconscionability.  Substantive unconscionability “focuses on the actual terms of the agreement and evaluates whether they create overly harsh or one-sided results.”  (Serafin, supra, 235 Cal.App.4th at p. 177, internal quotes omitted.) 

Plaintiffs argue the agreement is substantively unconscionable for five reasons.  First, they argue it allows for a choice of arbitrators but only if the seller approves.  The agreement provides, “You may choose the American Arbitration Association…, or any other organization to conduct the arbitration subject to our approval.”  That does not make it unfair or one sided.  The American Arbitration Association is a neutral provider of arbitration services.  Using a different arbitration organization requires the consent of both sides. 

Second, plaintiffs argue the arbitration agreement deprives them of their right to jury trial.  That is not unfairly harsh and does not shock the conscience.  That is the point of every arbitration agreement.  “Inherent in an arbitration agreement is a waiver of trial by jury—a waiver that is not precluded by the Constitution or the Code of Civil Procedure.”  (Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal.App.4th 1105, 1117, fn. 7.)  And it is mutual.  In a dispute brought by the seller, plaintiffs would also have the right to compel arbitration.

Third, plaintiffs argue the agreement unfairly limits defendants to paying a maximum of $5,000 of plaintiffs’ arbitration fees.  The arbitration provision states, “We will pay your filing, administration, service or case management fee and your arbitrator or hearing fee all up to a maximum of $5,000, unless the law or the rules of the chosen arbitration organization requires us to pay more.” (Richardson Decl., Ex. 1, p. 6.)  As plaintiffs note, “the California Arbitration Act (‘CAA’), prohibits shifting arbitral expenses to a consumer . (Code Civ. Proc. § 1284.3, subd. (a).)”  (Opp., p. 19.)  Courts “assume that the arbitrator will operate in a reasonable manner in conformity with the law.”  (Dotson v. Amgen, Inc. (2010) 181 Cal.App.4th 975, 984.) 

Assuming this provision is unconscionable, it is severable.  “The strong legislative and judicial preference is to sever the offending term and enforce the balance of the agreement” unless the agreement is “permeated by unconscionability.”  (Lange v. Monster Energy Company (2020) 46 Cal.App.5th 436, 453, internal quotes, citations, and alterations omitted.)  The court will therefore sever this provision and require Nissan North America, Inc. to pay plaintiffs’ arbitration fees.

Fourth, plaintiffs argue the provision exempting small claims disputes from arbitration is one sided because it tends to benefit the seller more than the buyer.  “An agreement may be unfairly one-sided if it compels arbitration of the claims more likely to be brought by the weaker party but exempts from arbitration the types of claims that are more likely to be brought by the stronger party.”  (Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 724 (Fitz).)  The agreement provides, “You and we retain the right to seek remedies in small claims court for disputes or claims within that court’s jurisdiction.”  (Richardson Decl., Ex. 1, p. 6.) 

Plaintiffs fail to show that the seller would be more likely than the buyer to bring disputes in small claims.  This is not like, for example, the agreement in Fitz, which required arbitration of claims arising from termination but not “ ‘disputes over confidentiality/non-compete agreements or intellectual property rights.’ ”  (Fitz, supra, 118 Cal.App.4th at p. 709.)  Either side could have a dispute within the jurisdictional limit of small claims court.  Moreover, that limit is twice as high “in an action brought by a natural person” (CCP § 116.221 [$10,000 instead of $5,000]), which makes it more likely the buyer will have a dispute in small claims court. 

Finally, plaintiffs argue the agreement’s provision permitting self-help remedies is one sided.  But that provision is about waiver, not about which disputes are subject to arbitration: “Neither you nor we waive the right to arbitrate by using self-help remedies, such as repossession, or by filing an action to recover the vehicle, to recover a deficiency balance, or for individual injunctive relief.”  (Richardson Decl., Ex. 1, p. 6.)  This provision does not permit the seller/creditor to avoid arbitration by repossessing the vehicle or bringing an action to recover the vehicle in court.  If the seller did so, the buyer could petition to enforce the arbitration agreement.

Enforcement by Non-Signatories

Though Nissan North America, Inc. did not sign the sales agreement with plaintiffs, it can enforce the arbitration provision under the doctrine of equitable estoppel.  Under that doctrine, “a nonsignatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims when the causes of action against the nonsignatory are intimately founded in and intertwined with the underlying contract obligations.”  (Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 495 (Felisilda).)  

Felisilda considered this issue based on the same arbitration provision.  The Court of Appeal held the vehicle’s manufacturer, who did not sign the agreement, had the right to compel arbitration under the doctrine of equitable estoppel.  (Id. at p. 496.)  There, the sales contract provided, “Any claim or dispute, whether in contract, tort, statute or otherwise (including the interpretation and scope of this Arbitration Provision, and the arbitrability of the claim or dispute), between you and us or our employees, agents, successors or assigns, which arises out of or relates to ... condition of this vehicle, this contract or any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract) shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action.”  (Id. at p. 490.) 

The Court of Appeal held the nonsignatory manufacturer could enforce this agreement:

In signing the sales contract, the Felisildas agreed that ‘[a]ny claim or dispute, whether in contract, tort, statute or otherwise ... between you and us ... which arises out of or relates to ... [the] condition of this vehicle ... shall ... be resolved by neutral, binding arbitration and not by a court action.’ …  Here, the Felisildas’ claim against FCA relates directly to the condition of the vehicle.

In their complaint, the Felisildas alleged that “express warranties accompanied the sale of the vehicle to [them] by which FCA ... undertook to preserve or maintain the utility or performance of [their] vehicle or provide compensation if there was a failure in such utility or performance.”  Thus, the sales contract was the source of the warranties at the heart of this case.  The Felisildas noted they “delivered the vehicle to an authorized FCA ... repair facility for repair of the nonconformities.”  However, “FCA ... has failed to either promptly replace the new motor vehicle or promptly make restitution in accordance with the Song-Beverly Consumer Warranty Act.”

The Felisildas’ claim against FCA directly relates to the condition of the vehicle that they allege to have violated warranties they received as a consequence of the sales contract. Because the Felisildas expressly agreed to arbitrate claims arising out of the condition of the vehicle – even against third party nonsignatories to the sales contract – they are estopped from refusing to arbitrate their claim against FCA. Consequently, the trial court properly ordered the Felisildas to arbitrate their claim against FCA.

(Felisilda, supra, 53 Cal.App.5th at pp. 496-497.)

Felisilda’s reasoning applies equally here.  Plaintiffs entered a sales contract with non-party Ross Nissan of El Monte.  (Richardson Decl., Ex. 1.)  The contract includes the same arbitration provision—verbatim—as in Felisilda.  (Id., pp. 5-6; Felisilda, supra, 53 Cal.App.5th at p. 490.) 

Plaintiffs’ first two causes of action against Nissan North America, Inc. make similar allegations arising out of the vehicle’s condition and the warranties received as a consequence of the sales contract.  The complaint alleges that in 2021, “[p]laintiff[s] entered into a warranty contract with NISSAN regarding a new 2021 Nissan Kicks.”  (Comp., ¶ 15.)  They entered that contract by buying the vehicle.  The warranty information booklet provides that the warranty is “transferable from the original [owner] to subsequent owners of the vehicle… without any action on [the buyer’s] part.”  (Comp., Ex. 1, p. 5.)  The complaint further alleges, “Defects and nonconformities to warranty manifested themselves within the applicable express warranty period.”  (¶ 16.)  “Defendant was unable to conform the Subject Vehicle to the applicable express warranty after a reasonable number of repair attempts.”  (¶ 19.) 

Plaintiffs Castro and Silva agreed to arbitrate any claim between themselves and Ross Nissan of El Monte “or [its] employees, agents, successors or assigns, which arises out of relates to … purchase or condition of this vehicle, this contract or any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract).”  (Richardson Decl., Ex. 1, p. 6.)

This action arises out of the condition of plaintiffs’ 2021 Nissan Kicks.  The sale resulted in the manufacturer’s warranty and created a relationship between plaintiffs and Nissan North America, Inc.—a third party who did not sign the sales contract.  Plaintiffs are equitably estopped from refusing to arbitrate their first cause of action for breach of express warranty and second cause of action for breach of implied warranty against defendant Nissan North America, Inc. 

Plaintiffs rely on Ngo v. BMW of North America, LLC (9th Cir. 2022) 23 F.4th 942 (Ngo) for the proposition that the manufacturer cannot compel arbitration unless the signatory dealership is a party to the case.  Ngo is not binding authority and the court does not find it persuasive.  The opinion merely makes a conclusory statement: “It makes a critical difference that the Felisildas, unlike Ngo, sued the dealership in addition to the manufacturer.  In Felisilda, it was the dealership—a signatory to the purchase agreement—that moved to compel arbitration rather than the non-signatory manufacturer.”  (Id. at p. 950.) 

Ngo offers no reasoning or explanation for why the dealer’s involvement makes a critical difference.  In Felisilda, the dealer’s involvement made no difference.  There, the dealer was not a party to the appeal because plaintiffs had dismissed the dealer as a defendant.  The Court of Appeal discussed only whether the nonsignatory manufacturer had the right to compel arbitration.  Its reasoning did not rely on the fact that the dealer moved to compel arbitration.  The opinion only mentions it to address a procedural quirk: “Granted, FCA did not move for arbitration, but filed only a notice of nonopposition to the dealership's motion to compel.”  (Felisilda, supra, 53 Cal.App.5th at pp. 498.)

Third Cause of Action for Negligent Repair Against Wish Automotive III, Inc.

Even assuming defendant Wish Automotive III, Inc. (Wish) is a third-party beneficiary of the contract, the arbitration agreement does not apply to plaintiffs’ third cause of action for negligent repair against Wish.  Plaintiffs allege Wish negligently failed “to properly store, prepare and repair” the vehicle (Comp., ¶ 44) when plaintiffs delivered it “for repair of [sic] on numerous occasions” (Comp., ¶ 42). 

Plaintiffs’ relationship with Wish was not a “resulting transaction or relationship” under the agreement because it did not result from the contract.  It resulted from plaintiffs’ choice to take the vehicle to Wish for repairs after the purchase.  They were free to take it somewhere else for repairs.   

In contrast, plaintiffs’ warranty from Nissan North America, Inc. resulted directly from the purchase contract.  The warranty information booklet states, “This warranty is provided to the original and subsequent owner(s) of a Nissan vehicle.”  (Comp., Ex. 1, p. 5.)  It further provides, “This warranty is generally transferable from the original ‘owner other than a Nissan dealer’ (OWNER) to subsequent owners of the vehicle at any time ownership of the vehicle is transferred, without any action on your part.”  (Ibid.)  The warranty goes with the vehicle when sold.  Whoever buys the vehicle automatically gets the warranty along with it.  And, unlike their ability to choose a mechanic, plaintiffs could not have gotten the manufacturer’s warranty from anyone other than Nissan North America, Inc.

Interpreting the agreement to apply to the third cause of action would make any dispute over future damage to the vehicle—such as for negligent repair by an independent mechanic, a collision with another motorist, or a dispute between plaintiffs and their auto insurance company—arbitrable as a dispute over “the condition of this vehicle” and a “resulting transaction or relationship.”  That is not a reasonable interpretation of the contract’s language.  Plaintiffs did not agree to that.    

            This pending court action therefore includes a dispute subject to arbitration and a related dispute with a third party not subject to arbitration.  (CCP § 1281.2(c).)  The court will exercise its discretion to “order arbitration among the parties who have agreed to arbitration and stay the pending court action… pending the outcome of the arbitration proceeding.”  (CCP § 1281.2(3).)

Disposition

Defendants’ motion to compel arbitration is denied as to the third cause of action against defendant Wish Automotive III, Inc., doing business as Nissan of Alhambra.

            Defendants’ motion to compel arbitration is granted as to the first and second causes of action against defendant Nissan North America, Inc.  The court hereby severs the following text from the arbitration provision: “all up to a maximum of $5000.”  (Richardson Decl., Ex. 1, p. 6.)  Nissan must pay plaintiffs’ arbitration fees in accordance with the remainder of the arbitration agreement and Code of Civil Procedure section 1284.3.  Plaintiffs are ordered to arbitrate their first and second causes of action against defendant Nissan North America, Inc.

            The court hereby stays the entire action pending resolution of the arbitration proceeding between plaintiffs and defendant Nissan North America, Inc.

            The court hereby sets a status conference re: arbitration on March 8, 2024, at 8:30 a.m.